Time Is Running Out for the January Barometer

We’d better have a rally soon or we’re in trouble … at least according to one key barometer of the markets.

Why am I so nervous so early in the year? Given the facts we have in hand so far in 2016, the historical record provides many clues to the way ahead – and it indicates we’re running out of time.

First consider these facts: The New Year swan dive of more than 1,000 Dow points in the first week of this year marks the worst start of ANY year in history for stocks.

With 2016 just eight trading days old, the Dow and S&P 500 are already down more than 5%, while the Nasdaq has shed 6.7% and the Russell 2000 small cap index has dropped almost 8%.

And it’s not just U.S. stocks, or equities in general, that are getting hit. European shares are plunging, too, with the U.K. FTSE Index down 5.9% while Germany’s DAX Index has lost 6.3% in dollar terms.

It doesn’t get any better in Asia, where Japanese stocks are already down 6.9%, Hong Kong has lost 9% and China’s Shanghai Composite Index has plunged 22.4% year to date. That’s a bear market magnitude decline in just eight days!

And commodity prices continue to plunge as well, with crude oil down another 15% year to date, now trading at 12-year lows.

This leaves investors wondering if the relentless selloff in just about every asset class to start the year will ever stop. And I’ve been hearing plenty of chatter this week about the so-called January Barometer: As goes the first week of January, so goes the month and the year.

Is this indicator telling us this could be just the start of a bear market? Let’s take a closer look at that historical record I mentioned earlier.

Could this be just the start of a bear market?

Based on S&P 500 data going all the way back to 1928, the trend in stocks during the full month of January is a pretty good predictor of the direction stocks will take for the entire year.

May the odds of a rally be ever in your favor …

When stocks move up in January, the stock market goes on to post full-year gains 80% of the time. And the average return of the S&P is 8.6% from February through December, according to data from Merrill Lynch.

But when stocks fall in January, watch out, because the stock market is only up 42% of the time, with stocks declining 1.8% on average for the full year.

The S&P 500 dropped nearly 6% last week, the first five trading days of this year, leading some pundits to claim that the January Barometer has spoken and stocks are doomed in 2016. But a closer look at the historical record says this isn’t necessarily so.

Based on the same S&P data stretching back to 1928, when stocks advance during the first five days of January, stocks go on to end the year positive 74% of the time. However, when stocks are down during the first five days, the chance of an up year is 50/50.

In other words, it’s pretty much a coin toss whether the stock market recovers later this year or not.

So the first-five-days indicator just doesn’t have the same predictive value as the full-month of January.

Still, with the S&P 500 already down over 5%, and with just two weeks and two days left in January, the bulls need to hope for a robust rally.

That’s because if the month ends as badly as it began, the odds of good year for the stock market are not in our favor.

Good investing,

Mike Burnick

P.S. Is your retirement protected from the chaos of both stock market volatility AND geopolitical instability?

It is no secret that these two events are completely linked. Just look at the markets over the past few weeks. Between the markets crashing and tension in Saudi Arabia, Iran, China and North Korea.

That is why, in times of global crisis, your retirement assets can disappear in a flash … if you’re not careful.

That’s why Larry Edelson has prepared a special report, Winds of World War III, to make sure that your retirement can remain intact.

Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.

{41 comments }

JimNThursday, January 14, 2016 at 7:47 am

well with these facts ill just stay away from investing and buy some hard assets

hawkThursday, January 14, 2016 at 9:14 am

that’s what i’d do.

andrewThursday, January 14, 2016 at 9:24 am

stocks are hard assets. these are the hardest assets i’ve own. it’s never easy to own stocks. it’s always hard.

MikeThursday, January 14, 2016 at 8:29 am

Easy money created this stock market bubble which will bust and the housing market is in bubble territory also being created by the fed, if rates were normalized both these scenarios would not be happening

xyphyrThursday, January 14, 2016 at 9:16 am

easy money for hard assets.

ianThursday, January 14, 2016 at 9:18 am

better to use soft money for hard assets.

johnThursday, January 14, 2016 at 9:19 am

why not use hard money for soft assets?

gordonThursday, January 14, 2016 at 9:20 am

you guys are getting me confused.

Richard LewisThursday, January 14, 2016 at 8:43 am

Truth is the first casuality of war. There are a lot of casualties because of the half truths, advice and financial manipulations of the O.P.M. industry!

gregThursday, January 14, 2016 at 9:31 am

are soft commodities hard assets?

frankThursday, January 14, 2016 at 9:32 am

no, hard commodities are.

mandiThursday, January 14, 2016 at 9:34 am

then corn is hard, but cotton is soft asset?

antonThursday, January 14, 2016 at 9:37 am

i like cash.

shannonThursday, January 14, 2016 at 9:38 am

gold is my fav.

chuckThursday, January 14, 2016 at 9:39 am

silver ain’t bad

jerryThursday, January 14, 2016 at 9:40 am

good to have both

aldermanThursday, January 14, 2016 at 9:42 am

lots of it too.

5000Thursday, January 14, 2016 at 9:42 am

lots of both.

frankThursday, January 14, 2016 at 9:43 am

bullion or coin?

shannonThursday, January 14, 2016 at 9:45 am

coin.

eagleThursday, January 14, 2016 at 9:46 am

eagles are best.

tonyThursday, January 14, 2016 at 2:19 pm

i get the message.

barryThursday, January 14, 2016 at 2:21 pm

it’s all the same. i’ve been fooled by everyone.

samThursday, January 14, 2016 at 2:34 pm

it’s all rigged.

judyThursday, January 14, 2016 at 2:35 pm

people are all the same.

mickThursday, January 14, 2016 at 2:36 pm

talk to one and you’re talk them all.

daveThursday, January 14, 2016 at 2:37 pm

no, you’ve got it backwards. talk to them all and you’re talking to just one.

mattThursday, January 14, 2016 at 2:38 pm

i never would have guess. they really had me fooled. i feel like i’m so dumb.

Jim MThursday, January 14, 2016 at 10:14 am

OK, so down in January results in an average down for the year of 1.8%. Well, since we’re down 5%+ already for the year, doesn’t this mean we should be UP at least 3.2% for the REMAINDER of the year? Just goes to show that numbers can be used to promote whatever you desire…

KenMonday, January 18, 2016 at 10:50 am

True, on average…

Ted FThursday, January 14, 2016 at 10:37 am

You can only pump so much air in the balloon before it bursts. You can only pile so many regulations on industry and business before the boat goes down, In the 1970’s the railroads were one of the most over regulated industries. The Penn Central is a classic example. It was forced to run money losing passenger trains to the tune of $17,000 every hour. Freight service on little or unused branchlines at nearly $9,000 and hour or well over $250,000,000 a year. When Consolidated Rail was formed with federal money, suddenly all those trains and branchlines disappeared and Conrail did something the PC couldn’t do and the other railroads folded into Conrail couldn’t do, make a profit and improve and maintain the equipment and right of way. Conrail was freed from government regulation to a great extent.

J P FrogbottomThursday, January 14, 2016 at 10:43 am

2016 is off to down start. Why not? We, and a lot of other countries are in debt, with few prospects of reducing it anytime soon. The largest driver in the world, and the 2nd largest have lost their oomph! Commodity prices are very week. So, get used to it. Supply and demand my dears. When supply adjusts, so will prices, just like labor costs, professional services etc. What is exempt from supply demand push-pull pricing? Taxes, you say, well I agree, but that’s another story.
I have adjusted my retirement portfolio to where I feel safer, while still earning ‘rent money’ from my investments. Easy come, easy go as they say. Too old to re-earn it anymore, so some caution is due! Your mileage may vary.

GaryThursday, January 14, 2016 at 12:39 pm

Ultimate Stock Options is taking it on the chin. Lack of management?

LoueThursday, January 14, 2016 at 10:02 pm

Pleas don’t encourage anyone to buy any hard assets are
Stocks you know we are in bubble , last time market crashed was because Finince , derivatives , ands scams, now it’s totally different, deflation is the the problem , under this era the company’s. Can’t make any money , if you don’t make money stocks go down pleas tell your people the will get second chance to buy stocks again , when we go below 2009 levels so anyone can prosper not just the billionaires thanks

LDFriday, January 15, 2016 at 1:53 am

People wake up! Obama has set the course! The distruction of the military. Eight years of distructive polices that drain the abilities for the Fed to be able to compnsate for the business to come back Half the country on food stamps. the corporate structures easy money as a bribe while shutting down the middle class. The Gov figures of 5% unimployment. Lies put out by the administration. It’s 25%. If you invest in the lies called Wall Street this year you will reap Obama’s delima. Good luck with that.

Eagle495Sunday, January 17, 2016 at 10:57 am

You’ve been duped…… :(

WillSaturday, January 16, 2016 at 9:47 am

My “we’re in trouble” prediction extends along in January but will take a respite shortly before Chinese New Year holiday during the second week of February. That should calm one culprit until the Sleeping Tiger again awakens after the holiday. Can you imagine the New Year crash of January then getting repeated in February. Now there is a cycle everyone has failed to predict.

Eagle495Saturday, January 16, 2016 at 5:16 pm

Same thing happened in 1937 when they tried to slow down support for the recovery from the Crash of 1929 and the Great Depression… It WAS NOT a crash, but rather a pullback…. If I remember right it did not even last a year and then the markets moved to new highs again…..

My Long Term Indicator went to a SELL on the First Trading Day of January and I posted it here… Same thing happened in January 2008… When my Long Term Indicator goes to a BUY, I will also post it here again…

This IS NOT the End of the World as the Conservatives are screaming…… They are also failing to note that EVERY STOCK MARKET CRASH AND DEPRESSION in the history of America has happened during their administrations!…

And EVERY STOCK MARKET RECOVERY during the same period has happened during Liberal Progressive Administrations!… In the past 100 years, those where FDR in 1932 and Obama in 2009

Harry JohnstonSunday, January 17, 2016 at 1:50 am

Whichever way one looks at the World economy the ineluctable conclusion is that we are in for many years of chaos.

Hipolito RomeroSunday, January 17, 2016 at 4:27 pm

Good Analysis, I would like to receive any comments to help my financials

JohnSunday, January 17, 2016 at 8:03 pm

The market was due a serious correction. Without such there is no energy for a huge upside rally. For several weeks most stocks were not well, only a few biggies. Where else does EU money and asian money for that matter find safety?